Prospects For The Internal Auditing Profession
The internal auditing profession is expected to continue to grow and evolve in the coming years. With the increasing importance of risk management and organizational governance, the role of internal auditors is becoming more critical to the success of businesses and other organizations. Some of the key prospects for the internal auditing profession include:
The Role of Internal Audit Function in Modern Organizations
Organizations today rely heavily on information and knowledge, and operate in specialized and complex industries and sectors on a global scale. The emergence of new organizational structures, such as strategic alliances and virtual organizations, has fundamentally changed the purpose and operations of organizations, and consequently, the need for control. Compared to the traditional organizations of the past century, the control framework within organizations today is vastly different. Given this, the internal audit function has become a crucial support function for various stakeholders, including management, the audit committee, the board of directors, external auditors, and other key stakeholders. When properly developed and executed, the internal audit function can play a crucial role in promoting and supporting effective organizational governance.
The demand for risk management professionals has increased as multinational enterprises recognize a growing array of risks facing the organization. Any disciplined approach to growth and value creation assumes effective management of significant and likely risks. Risk management can be considered both at the enterprise-wide and departmental levels. The internal audit function can contribute greatly to risk management by furnishing analyses and providing counsel to top management and the board of directors.
The internal audit function also performs micro-level risk assessment for its own purposes. This assessment identifies areas that require the greatest efforts on the part of the internal audit function and ensures appropriate audit coverage of the audit universe over defined periods of time. Internal auditors can partner with management to establish and monitor business processes for risk assessment, measurement, and reporting. Modern approaches to risk-based internal auditing systematically assess risks and link them to business objectives.
The internal audit function can facilitate the processes by which business units develop high-quality risk assessments. This can be very useful to the internal audit function in planning its own work, primarily by enhancing the quality of decision-relevant information and minimizing duplication of effort. In this way, the internal audit function can play a significant role in establishing and implementing enterprise risk management initiatives.
In contemporary organizations, the internal audit function has become a crucial support function for management, the audit committee, the board of directors, external auditors, and key stakeholders. Effective organizational governance relies on efficient monitoring and oversight of risk management. Internal auditors, who are perceived as "risk management experts," are expected to play a significant role in supporting and promoting effective organizational governance. The recent New York Stock Exchange requirement for listed companies to have an internal audit function has raised the profile of the internal audit function and expanded its opportunities to add value.
To take advantage of these opportunities, internal audit professionals must develop a clear understanding of the value proposition they offer and manage their perception and image both within and outside organizations. Once the internal audit function gains the trust and confidence of those charged with governance, it can deliver outstanding performance and value using the combined wealth of knowledge and experience possessed by its personnel in control best practices, risk monitoring and management, and governance structures and processes.
In the coming decades, the internal audit profession is expected to play an immensely significant and high-profile role within organizations. With the Big Four professional services firms demonstrating a strong interest in developing their internal audit co-sourcing practices, the internal audit profession is poised for significant international impact. The globalization of internal auditing activities and the recognition of the value added by the internal audit function are welcome trends. By being given a seat at the table where high-level discussions of organizational governance occur, the horizons for the profession have been considerably expanded and its opportunities to add value have grown exponentially.
The internal auditing profession is poised for significant growth opportunities in the 21st century. Nevertheless, it is important for interested academics to meticulously analyze advancements in practice to develop a systematic body of knowledge that can be passed on to future generations of internal auditing professionals. The existing body of knowledge should not only be critically evaluated and updated to reflect the current state of the art but should also promote and inspire cutting-edge thinking through research, which often leads to innovative practices.
Characteristics Of Internal Audit
The purpose of an internal audit is to ensure that the internal control system established by a company's management is functioning as intended and for the benefit of the company's members. The internal audit assesses whether the business practices implemented by the company's officers are effective in managing the business prudently and achieving the organization's strategic objectives.
Internal audits can encompass both financial and operational issues and are generally conducted by a qualified individual who evaluates the governance and risk management methodologies of the organization. The internal auditor is responsible for reporting to the company's management or audit committee.
The internal audit function operates independently from other departments within the organization but remains part of the company's internal structure. It involves performing audits of various areas of operation within the business, as directed by the annual audit plan.
The internal audit process focuses on assessing the main risks facing the organization and the actions being taken to manage those risks effectively, thereby enabling the organization to achieve its objectives. Examples of risks that the internal audit process evaluates include those that could damage the company's reputation, such as employing cheap labor in foreign countries or strategic risks such as producing too many products in relation to available resources.
The internal audit process is limited to the governance, management controls, and risk management of the organization. It is conducted at the discretion of the business owners to measure the efficiency of the company's operations.